Retail or insto – the index-huggers dominate

The Australian Securities and Investments Commission (ASIC) has referenced research confirming the degree to which Australians are open to receiving financial advice in the context of the impacts of the COVID-19 pandemic.

In a submission filed with the Senate Economics References Committee, ASIC has specifically cited research undertaken by the Australian Securities Exchange (ASX) which revealed that 63% of Australians are open to receiving financial advice and that 17% of people were more likely to seek financial advice after COVID-19.

ASIC’s submission responding to the Government’s legislation which will effectively make permanent continuous reporting obligation relief measures (Treasury Laws Amendment (2021 Measures No. 1) Bill 2021) has served to highlight Australian investors’ concentration on domestic equities.

It noted that Australian investors accounted for approximately 70% of issued capital in the ASX 200 in July 2019, with institutional and retail investors accounting for 42% and 28% respectively.

North America represented the second largest source of ownership in the ASX 200 at 14.5%, a 21% increase from 2014 (12%), with the research cited by ASIC stating that almost all of these gains had come through US‐based index funds, which now accounted for more than 60% of US investment in the ASX 200, and of which more than 90% is managed by three firms—Vanguard, BlackRock and State Street Global Advisors.

It said that as at the end-of-December quarter 2019, 22% ($418 billion) of the $1.9 trillion superannuation funds under management were invested in Australian listed equities, 25.3% ($106 billion) in international listed equities and 4.1% ($17 billion) in unlisted equities.

Citing Orient Capital analysis, it said direct super fund investments in ASX 200 companies had more than doubled to $78.3 billion in the past five years, up from $16 billion in 2008.

It said that if the growth rate continued, direct investment by superannuation funds in ASX 200 companies was estimated to reach $157 billion by 2023.

The research cited by ASIC said exchange-traded funds (ETFs) grew by over 30% to $79.3 billion in December 2020 with this trend continuing into 2021 with Beta shares reporting the Australian ETF industry was $97.3 million by the end of February 2021, it said.

“According to Betashares, 83% of inflows in 2020 went to index products, 10% to active, and 7% to smart beta, indicating that investors wanted broad index exposure rather than paying for active ideas. By category, the industry saw the largest inflows into international equity products, followed by Australian equities, fixed income, commodities, and short products.”